LoansFinancial Glossary
Unsecured Loan
Definition
A loan granted without any collateral — the lender relies solely on the borrower's creditworthiness, income, and repayment history. Personal loans, credit card debt, and some business loans are unsecured. Because the lender has no asset to seize on default, unsecured loans carry higher interest rates (12-24%).
Why It Matters
Unsecured loan interest rates are nearly double those of secured loans. A Rs 10 lakh personal loan at 14% for 5 years costs Rs 3.95 lakh in interest. The same amount as a loan against FD at 7.5% costs only Rs 2.04 lakh in interest. Always explore secured alternatives before opting for unsecured credit.